Question

1.

A project has an initial cost of $59,925, expected net cash inflows of $14,000 per year for 6 years, and a cost of capital of 9%. What is the project's PI? Do not round your intermediate calculations. Round your answer to two decimal places.

2.

A project has an initial cost of $56,300, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 12%. What is the project's payback period? Round your answer to two decimal places.

How many years ____

3.

A project has an initial cost of $60,000, expected net cash inflows of $14,000 per year for 7 years, and a cost of capital of 13%. What is the project's discounted payback period? Round your answer to two decimal places.

How many years _____

Answer 1

1.PI = Present value of cash inflows/Initial Cost

= 14,000*PVAF(9%, 6 years)/59,925

= 14,000*4.4859/59,925

= 1.05

2.Payback period = Initial cost/Annual cash inflows

= 56,300/12,000

= 4.69 years

3.Discounted payback period:

Year	Cash flow	PVF	Discounted cash flow	Cumulative Cash flow
0	-60,000	1	-60,000	-60,000
1	14,000	0.885	12,390	-47,610
2	14,000	0.783	10,962	-36,648
3	14,000	0.693	9,702	-26,946
4	14,000	0.613	8,582	-18,364
5	14,000	0.543	7,602	-10,762
6	14,000	0.480	6,720	-4,042
7	14,000	0.425	5,950	1,908

Discounted payback period = 6 + 4,042/5,950

= 6.68 years